As baby boomers who are anticipating downsizing, we are thinking about home renovations or upgrades that make financial sense. We want to maximize the market appeal of our home without overspending. So I decided to do a little research in the area of home improvements and particularly their relative cost versus financial benefit received. Some people call this the “payback analysis.”
Re-Sale Benefits from Home Improvements
Second, pre-sale renovations can, in some cases, significantly increase re-sale value. Current buyers may be looking for features that your house doesn’t have or for finishes that are more contemporary and not dated.
Third, if you finish the upgrades well before you actually sell, you get to enjoy the improvements yourself for a few years. This can help justify a particular renovation that may cost you more than you will receive in increased re-sale value. The fact is that very few upgrades actually produce a positive return on investment in actual cash value.
Home Upgrades and Improvements Worth Considering
A lot of experts will tell you that a complete kitchen or bath renovation can really increase the market value of your home. The problem is that a total kitchen or bath makeover (e.g, tearing out and starting from scratch) is extremely costly and in most cases does not make sense as part of a downsizing plan. You will probably end up spending a lot more money than you will get back in the selling price. To me, a cosmetic upgrade (paint, cabinet re-facing, counter-tops, bathroom flooring) is a more logical move prior to selling. You may need that money for more practical needed pre-sale renovations, such as replacing an aging roof or worn carpeting.
According to my research, these home improvements can make financial sense:
1. Front Entry Door. This is number one on our list because our wooden door has had it. It is 15 years old and paint does not work anymore. You can spend $1000-$5000 on an entry door replacement. But keep in mind that this is probably the first thing that buyers see and first impressions matter. Most experts that I have read about believe that replacing a worn out door will return much more in re-sale value than the cost of replacement.
2. Landscaping. This is another big need for us. I am not a fan of yard work and don’t like spending money on it either. So our front yard has slowly deteriorated over time from benign neglect. But to be honest, it won’t take much to bring it back to life when we get ready to sell. New sod in the front, some additional shrubs and plants, and a professional yard “manicure” and we should be good to go. We will probably wait until the very end before spending this money because our two dogs can cause a lawn to show wear and tear in a hurry.
One study I read about stated that quality landscaping can add 5%-11% in value to your home so the key will be to select yard upgrades that make financial sense. Curb appeal has intangible benefits as well for attracting potential buyers cruising the neighborhood.
3. Siding. The house we will downsize from is brick. It looks good so we don’t need to do anything except clean it. Our vacation home has wood siding which we just finished painting. I have already begun researching an upgrade there. We are definitely going to replace it with a fiber cement siding product when it is time to paint again. I want siding that is durable, that retains its appearance, and does not need frequent painting. Pre-painted fiber cement siding is the answer for me. The cost depends on the size of your house but a typical range is $10,000 – $15,000. Payback estimates are 82%-87% so this is something that you need to carefully consider. If your siding looks really bad from the street, the payback will probably be over 100%.
4. Windows. Replacing all of your windows as an upgrade probably does not make sense as part of a downsizing move. It’s very expensive, as in $10,000 – $20,000 for a large home. The payback is in the 75% range. On the other hand, we had a window company come in recently to repair some rotted window sills and replace and adjust all of the window hardware to improve the window movement. That makes sense because these are the kinds of things that a home inspector will red flag anyway.
5. New or Upgraded Deck. If you live in a climate where outdoor living is possible, you probably need to have a deck. Buyers seem to expect this. They can be expensive, e.g. $10,000 – $30,000. I certainly wouldn’t build a new deck prior to selling, as the payback is in the 73% – 82% range. Structural and cosmetic upgrades do make sense because buyers are turned off by outdoor living areas that look unsafe. If you are going to be in the house a few more years and will enjoy the deck, why not pull the trigger anyway and put one in?
Final Thoughts on Pre-Sale Renovations
We must remember that one of the important benefits of downsizing is to convert equity into cash that we can spend or invest for retirement. Careless or overlooked home improvement upgrades can interfere with that benefit. That’s why I am studying this carefully. I want to balance my desire for a nicer home with my overall financial plan.
What improvements are you planning before downsizing?
Photo credit: Sean Dreilinger